KfW prints Kangaroo green bond under new framework

KfW Bankengruppe (KfW) returned to the Australian green-bond market on 17 July with a A$450 million (US$317.7 million) five-year green bond, four years after its inaugural green Kangaroo. Lars Ainsley, senior manager, new issues and capital markets at KfW in Frankfurt shares the agency’s perspective on green-bond market development with KangaNews.

The new deal is also KfW’s first Kangaroo bond issued under an updated green framework and its second green Kangaroo line. It has previously tapped its first line on two occasions, most recently in October 2017.

What were the reasons for bringing a new green-bond line to the Kangaroo market now, having not been active in this space for nearly two years?

As in other parts of the world, we have witnessed green investments and green bonds recently gaining further traction in Australia. KfW is already one of the largest issuers of green bonds in capital markets globally and we want to be a catalyst for the ongoing development of the Australian green-bond market as well.

Having expanded our green-bond framework – which now includes energy-efficient housing – we are very happy with our successful return to Kangaroo green-bond format.

Deal pricing

Issuer name: KfW Bankengruppe
Issuer rating: AAA/Aaa
Pricing date: 17 July 2019
Maturity date: 24 July 2024
Leads: Deutsche Bank, RBC Capital Markets, TD Securities
Distribution by geography: see chart 1
Distribution by investor type: see chart 2

Volume: A$450 million
Total outstanding in the line: A$450 million
Coupon type: fixed
Coupon rate: 1.5%
Issue/re-offer price: 99.952%
Issue yield: 1.51%
Margin to swap: 36bp/s-q
Margin to ACGB: 49bp/April 2024

How have investors’ perceptions about green bonds in the Australian market developed since KfW’s inaugural green bond and subsequent taps?

Awareness around sustainable investments has picked up and a growing number of investors have started including ESG [environmental, social and governance] criteria in their investment decisions or even set up dedicated green-bond portfolios.

As a consequence, the appetite for green issuance is continuously increasing. Market participants’ overall engagement with ESG topics at conferences or in bilateral meetings has reached a completely different level compared with when KfW first issued a Kangaroo green bond.

How did pricing stack up against KfW’s global green-bond curve? Is there a pricing benefit for KfW issuing green bonds relative to vanilla bonds?

First and foremost, green bonds allow us to diversify our already broad investor distribution. In our home market, we have even been able to achieve pricing advantages on primary transactions. This phenomenon reflects a still undersupplied market segment. The same situation holds true for the secondary market of Kangaroo green bonds, which tends to trade tighter than conventional bonds.

What are KfW’s future plans for green-bond issuance and where does the Australian dollar fit in?

Our overall funding target for 2019 amounts to €80 billion (US$90.1 billion) and so far we have refinanced almost €60 billion.

Since the update of our green framework in May 2019 we have already been able to place €4 billion of green bonds in euros, Swedish krone and now Australian dollars. For the remainder of the year, we plan to reach a total issuance volume of €6-7 billion in green-bond format across various currencies.

In the case of further investor appetite for Australian dollar green bonds, we are happy to consider a reopening of our latest green bond.

“Market participants’ overall engagement with ESG topics at conferences or in bilateral meetings has reached a completely different level compared with when KfW first issued a Kangaroo green bond.”

The EU taxonomy technical report was released on 18 June. How relevant is the report to KfW’s green-bond programme? What impact will the report have on issuance in currencies outside of the EU?

KfW actively contributed to the working groups on the EU taxonomy and EU green-bond standards. We think it is very important to provide more precise guidance to the market for its further development. Global capital markets have a responsibility to help reach climate targets such as the Paris Agreement and United Nations sustainable development goals. Hence, we welcome these EU initiatives that could a leading example for other regions of the world to follow. In this context our green-bond programme is well embedded in the European framework.

Does KfW have plans to branch into other forms of sustainability issuance – such as social bonds?

At the moment our focus is on green bonds. We believe it is important to foster the development of this market with large and liquid issuance. An established global green-bond market with high standards can be a catalyst for other themes.

Source: KfW Bankengruppe 19 July 2019